In India, the corporate bond market constitutes a relatively small size of around 13% in terms of GDP compared with the government bond market, which is around 30.4% in terms of GDP.
Government securities (G-Secs) will add lustre to the proposed debt exchange-traded fund (ETF) to be launched next year as part of the initiative by the Centre to help PSUs bring down their cost of borrowings. “Along with bonds of ‘AAA’ rated PSUs, G-Secs will make the proposed debt ETF far more attractive for investors,” said Atanu Chakraborty, secretary, department of investment and public asset management (DIPAM). The department of economic affairs would take a final call on making G-Secs part of the ETF, he added.
In India, the corporate bond market constitutes a relatively small size of around 13% in terms of GDP compared with the government bond market, which is around 30.4% in terms of GDP. The debt market comprises the government securities market and the corporate debt market. G-Secs constitute 79% of the total amount of outstanding bonds in India.
Besides bonds, the proposed debt ETF could comprise credit-linked note, debentures and promissory notes as underlying instruments issued by participating CPSEs to help them meet their capex and business needs by leveraging their aggregate strength. “This will bring enhanced liquidity, enhanced investors base and transparency and smoothening of borrowing plans of the participating CPSEs,” DIPAM had said in a note.
Over a dozen CPSEs have expressed interest to tap the debt ETF route for fund raising. In the Budget for 2018-19, the government had announced plans for debt ETF, following the success of equity ETFs like CPSE ETF and Bharat-22 ETF. The Centre could mop up around Rs 35,000 crore via ETFs, or 44% of the projected disinvestment receipt of Rs 80,000 crore, in the current financial year.